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The ratio of Allowance for Uncollectible Accounts depends on either on the Percentage of Sales Method (Income Statement Method) or the Percentage of Receivables Method (Balance Sheet Method) under the Allowance Method . It is for company to choose which method is best to fit to the business line. Based on the past experience, the aging of accounts or Balance Sheet method may be better than the percentage of sales method.

The allowance for receivable is creating by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts as shown below:                            Accounts Receivable a/c   XXX                                                                  Allowance for Doubtful Accounts a/c   XXX (Estimation for Uncollectible Accounts Is Created) Here is Allowance for doubtful accounts is a Contra asset Account as it is the reversal of accounts receivable. It is just an estimation to match Uncollectible Accounts Expense with the unpaid invoices of sales for the accounting period according to Matching Principle GAAP .

When it is clear that the customer will not pay his over due payments as he has been declared as bankrupt or insolvent by the court, then it is sure that at this time he is unable to pay so now it is better to Write Off Uncollectible Accounts . Although, there is still chance that he will pay, but at this time, he has failed to pay.   We can Write Off Uncollectible Accounts by passing following Reversing Entry :             Allowances For Doubtful Accounts a/c     XXX                                                                          Accounts Receivable a/c    XXX (To Write Off Uncollectible Accounts As Customer Has Declared as I nsolvent By Court)

If the u ncollectible accounts which was previously written off, but now customer again is ready to sent payment to company then two Accounting Journal Entries are passed by the company. 1. For Creating Uncollectibele Accounts Again: In this step, as the customer is willing to pay, then he again becomes the customer of the company and company pass the following journal entry for Estimating Bad Debts Expense (it is the reversal of the previous entry of Writing Off Uncollectible Accounts ): You Can Also Read Out, “ Bad Debt Recovered Account ”                            Accounts Receivable a/c   XXX                                                                 Allowance for Doubtful Accounts a/c  ...

Allowance for Doubtful Accounts that is an estimated for Bad Debt Expense that are closed at the end of accounting period if those customers who paid their payments on time for unpaid invoices. In the original entry there was credited to the allowance for doubtful accounts now debited to close it and credited the Accounts Receivable as shown below:                  Allowance for Doubtful Accounts a/c    XXX                                                                             Accounts Receivable a/c    XXX (Close Allowance for Doubtful Accounts On Payment By Customers) The closing of allowance for doubtful accounts affects only Balance Sheet as there is decrease in Accounts...

Contra Liability Account is the deduction from relevant Liabilities on Balance Sheet . Examples are Debt Costs on Issuance of Debts, Discount on Loan Payable Account. When debit is issued to client, then the issuance cost is deducted from the amount of loan given to client. For example, if the client want a loan of Rs. 100000, then if debt issuance cost i.e., registration fees, Registratio n Forms fees, etc. is Rs. 500, then it is deducted from loan amount on Balance Sheet of Company’s Business.

Drawings Contra Owner's Account | What Does Contra Equity Account Mean In Accounting? Contra Equity Account is the reversal of Owner’s Equity or Equity Account on Balance Sheet . Examples are Drawings Account, Dividend Account, etc. 1. Drawing Contra Owner’s Equity Account It is the withdrawn of Cash or Goods by the business owner in case of Sole Proprietorship for his own personal use. It is deducted from Closing Capital on Balance Sheet.   2. Dividend Contra Equity Account It is the deduction from Ending Equity on Statement of Changes in Equity as it is the distribution of Profits to shareholders (i n case of Companies) or stockholders in case or corporations.